Daily Management Review

Wal-Mart to invest in Indian online retailer Flipkart


09/29/2016


The world's largest retailer Wal-Mart Stores is negotiating with Flipkart, the largest Internet company in India, according to a source familiar with the situation. If the parties agree on cooperation, Wal-Mart will be able to strengthen its position in the market of Asia's third-largest economy.



Walmart
Walmart
Wal-Mart spokesman in India declined to comment on the possible deal; so did a representative of Flipkart.

Wal-Mart’s future investment in Flipkart reflects latest developments of online strategy of the world's largest retailer. Now, the company is trying to restore growth of online sales and improve competitiveness in relation to its rival, Amazon. In September, Wal-Mart has completed takeover of American online retailer Jet.com Inc. for $ 3.3 billion. Earlier, in June, the company has sold its Chinese Internet business to local JD.com in exchange for a 5% stake in it.

Online sales of Wal-Mart reached nearly $ 14 billion, or 3% of its total turnover of $ 482 billion over the past year. However, quarterly growth of the retailer's Internet sales has slowed down in the last few years. Amazon's revenue totaled $ 107 billion in 2015, and its growth is ahead of Wal-Mart performance.

Analysts believe that investing in the Indian Flipkart may help Wal-Mart pave a way for development in a country that has been a daunting task for the American company until now.

In 2013, after years of lobbying and attempts to reach 1.2 billion Indian consumers, Wal-Mart has postponed plans for active construction of supermarkets in the country. The retailer explained it by too strict regulation of the market. Indian law demands from foreign trade companies that local products account for not less than one third of the turnover of shops in the country. Now, Wal-Mart has 21 wholesale center in India, yet none of them has the right to sell products directly to consumers.

In case of the transaction, Flipkart will receive money and a strong partner in the fight against Amazon. The latter, along with Uber Technologies Inc. and other start-ups, turned close attention to the Indian market amid slowing Chinese economy. According to Morgan Stanley’s forecast, the e-commerce market in India will reach $ 100 billion by 2020, compared to $ 3 billion more in 2013

In recent years, Flipkart and some other Indian start-ups have had some difficulties to raise funds from investors. Indian online merchants have lost millions of dollars on large discounts on various products - from smartphones to shoes, and analysts expect the market shake-up.

Some investors evaluated Flipkart price of $ 9 billion in 2016, says a banker familiar with business of the company. It can be compared to $ 15 billion in 2015, when the Indian startup has received funding from the shareholders.

A few months ago, Flipkart discussed possible investments in JD.com, but the negotiations did not lead to a transaction, says the source. 

source: wsj.com






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